Canadian businesses far behind those in other countries in adopting AI technology

Mark Lowey
December 20, 2023

Canadian businesses are lagging their international competitors in adopting artificial intelligence technology despite studies showing AI could potentially help increase GDP and productivity, according to recent research.

Only 3.7 per cent of Canadian firms with five or more employees had deployed AI in their business in any capacity as of the end of 2021, a study by the Dais, a public policy and leadership think tank at Toronto Metropolitan University, found.

For companies with 10 or more employees, Canada ranked No. 20 out of 35 countries for AI adoption, said the study, based on analysis of data collected by Statistics Canada. Globally leading nations in AI adoption have more than double the rate of business AI adoption compared with Canada, with Denmark at 24 per cent having the highest rate.

“With many new AI-based innovations coming to market, there has been a lot of fear around job security and the future of our society,” report author and senior policy analyst Angus Lockhart said in a statement. “The reality is we still have a very long way to go before the AI revolution arrives, and if Canada is to remain a global competitor in tomorrow’s economy, responsible AI adoption is critical.”

 AI adoption is highest in Quebec, with five per cent of firms reporting adoption, while British Columbia, Ontario and Saskatchewan follow at four per cent, according to the study. Alberta, at three per cent, is below the national average. Manitoba and Atlantic Canada and the Territories have only two per cent of firms adopting AI.

“The strength in Québec is likely due to a strong local ecosystem and significant local efforts that have gone into promoting AI adoption through the work of organizations like Mila [Quebec AI Institute] or Forum IA Québec,” the study said.

From 2017 to 2021, more than $800 million in public funding was allocated to foster the growth of Quebec’s AI ecosystem, stimulating an additional $1.5 billion in private investments over the same period.

Quebec’s AI ecosystem ranks seventh among the world’s top AI nations, especially excelling in “research, government strategy, and commercial pillars,” according to a report by U.K.-based Tortoise Media.

In 2022, the Quebec government reaffirmed its commitment towards AI in its new Stratégie québécoise de recherche et d’investissement en innovation. In addition to support for AI research and development, AI adoption across Quebec’s organizations is a key focus of the strategy.

A study conducted by PricewaterhouseCoopers for the Forum IA Quebec in 2022 concluded that a deliberate shift towards increased AI adoption could potentially drive Quebec’s GDP to grow by seven per cent to 14 per cent by 2035, with the creation of an additional 0.8 per cent to 1.8 per cent job opportunities.

Inequity and misalignment in AI adoption by Canadian businesses

The Dais study found that across businesses of different sizes, businesses in Canada with 100 or more employees report the highest rates of AI adoption, with 20 per cent already using AI.

Only six per cent of medium-sized businesses (20 to 99 employees) and three per cent of small businesses (less than 20 employees) have adopted AI.

For workers in Canada experiencing AI in the workplace, that disparity means less than 60,000 workers in small businesses are working with AI, compared with more than two million in large firms exposed to AI at work.

Some equity groups have been left behind to date in AI adoption, the study noted. “Less than one per cent of all women-owned businesses have adopted artificial intelligence and among those surveyed, not a single business owned by Indigenous peoples or people living with a disability reported adopting AI technology in any way.”

Across different industries, utilities (17 per cent), finance and insurance (13 per cent), and information and culture industries(13 per cent) report the highest rates of adoption.

Construction and food and accommodation industries have the lowest rate – at one per cent.

Canada has yet to adopt any industry-based strategies that would benefit one sector over another, the study said. “The result of this is that adoption has not been concentrated in areas that have the biggest economic impact. Rather, some of the most important industries in terms of economic contributions or employment have actually been relatively weak in terms of adoption.”

The largest contributing industry to Canada’s GDP – real estate– is one of the weaker industries in terms of AI adoption, at only 3.4 per cent. Manufacturing, the next largest contributor to GDP, is above the national average at 4.6-per-cent rate of adoption, but still far below the industries leading in AI adoption.

Similarly, the largest private sector employers – health care and social assistance, and retail trade – are also at the lower end of industry adoption, at 1.6 per cent and 2.8 per cent adoption respectively.

Firms that report any spending on R&D are nearly seven per cent more likely to have adopted AI than similar firms with no R&D spending, the study found.

Among the largest businesses, 40 per cent use artificial intelligence in some way to support their operations in information communications technology security, according to the study. Comparatively, only 12 per cent of small businesses use AI to support ICT security efforts. Factoring in the additional difference in overall AI adoption, large firms are close to 20 times more likely to be using AI for security purposes than small businesses.

“This difference is significant because while small businesses are not keeping pace with technological advancements, bad actors could increasingly exploit this gap, putting smaller firms at risk of increased cyber-attacks,” the study said. "It's important for Canada to ensure that we are not leaving our SMEs at a greater risk of attack by ignoring their security needs and leaving them behind on AI adoption.”

Barriers to businesses adopting AI

Sixty-nine per cent of businesses that haven’t adopted AI yet said they have not identified a business need for it.

The next highest answer is similar – 28 per cent of non-adopters said they don’t know what AI tools are available. This is in line with findings in a report from the Quebec-based Scale AI global innovation cluster, which suggested only five per cent of executives in Canada believe AI is critically important now and only 27 per cent believe it will be critically important to them in the next two years.

The Dais study pointed out that both of these responses are representative of businesses that are not actively in the AI marketplace. They aren’t engaged with the options available to them, either from a lack of knowledge or a lack of desire to pick up AI internally.

“Collectively, businesses agreeing with either of these responses represent the majority of firms in Canada, making this the most important factor behind lack of AI adoption.”

Looking at firms that might already be in the AI marketplace, the leading reasons firms said they have yet to adopt AI are the cost of technologies and the skills gaps in their workforces. These are both more commonly discussed as barriers when governments look to promote AI adoption, and such firms are likely the easiest group to convert into adopters, the study said.

Only five per cent of non-adopting companies said that privacy and security concerns are holding them back from deploying AI. And just two per cent of companies said legal concerns contributed to them having not adopted AI.

More policy tools, other initiatives needed to promote AI adoption

Many of the policy tools in Canada’s $440-million AI strategy are focused on research, such as grants for public research, institutional research funding and Centre of Excellence grants, the Dais’s study said. Canada – like India and other countries that have higher business AI adoption rates – needs to consider using tools like public awareness campaigns to help promote mass adoption of AI among businesses that are not yet in the AI marketplace, it said.

Since small firms in Canada are getting left behind in AI, “as new proposals are developed to improve the pace of adoption, special focus should be placed on supporting small and medium enterprises in implementing AI.”

To help build demand for AI, the study said, Canada needs more initiatives like the Computer Research Institute of Montreal’s training programs, in partnership with the University of Sherbrooke, to teach business leaders to write business plans for AI use at their firm. Similarly, the Smith School of Business at Queen’s University offers a Master of Management in Artificial Intelligence degree that includes programming designed to help make business cases for AI in the workplace.

In November, the Canadian Chamber of Commerce launched its Future of Artificial Intelligence Council, a 30-member forum representing a diverse cross-section of organizations across the country. The council aims to foster Canadian-led innovation and responsibly integrate AI into businesses to drive economic growth and productivity.

Canada’s AI strategy hasn’t put a significant effort into promoting AI adoption by specific industries, resulting in some industries that are most important to Canada’s economy not necessarily being as successful in adoption as other industries, according to the study.

More targeting of specific industries and the specific tools they need for AI adoption – as is done in U.K. – would be useful, it said.

When it comes to workforce skills, more upskilling programs are needed for existing ICT workers best suited to supplement implementation of AI systems within their companies, the study said. More upskilling of non-ICT workers also is important to the successful implementation of AI tools, since they need to be actively used within the business to be effective.

The most important takeaway from studying business adoption of AI is that there is significant room for growth in responsible AI use in Canada, the study said. “Even modest improvements in the rate of adoption of these technologies could move Canada from a global laggard to a frontrunner in AI adoption, with large potential benefits for productivity and our economy.”

Global survey finds Canadian businesses trailing other countries in AI adoption

The U.K.-based Peninsula Group, a global employment law, human resources, and health and safety advisory and consultancy firm, conducted a separate survey of 79,000 businesses across five countries – Australia, Canada, Ireland, New Zealand, and the U.K. – to look at the opportunities and concerns employers have around the use of AI in the workplace.

The survey found that Australia leads in AI adoption with 41 per cent of businesses currently using AI in some way or another, compared with Canada where 33 per cent of businesses reported they've started to use AI.

Sixty-seven per cent of Canadian employers have not yet incorporated AI into the workplace and have cited security risks as one of their greatest concerns, according to the survey.

(Editor’s note: In contrast, the Dais’s study found that only five per cent of non-adopting companies said that privacy and security concerns are holding them back from deploying AI).

More than 50 per cent of employers in Australia, Canada and Ireland who use AI are unsure of its impact, according to the Peninsula Group’s survey. Canadians are the most cautious, with 17 per cent of employers believing AI will be highly detrimental and 13 per cent saying they are fearful of the unknown elements around AI.

Only one-third of employers believe AI has the potential to positively transform any workplaces. In Canada, almost 20 per cent of employers believe AI is useful, but won’t overtake traditional ways of working.

More than half of employers globally are either unsure or believe AI will probably reduce the number of people employed at their company at some point. Forty per cent of employers believe people are irreplaceable in their business.

The majority of businesses in the countries surveyed are using AI for administrative tasks (40 per cent) or creative writing (35 per cent). A third of businesses in Ireland that use AI are using it for customer services, while a quarter of Australian employers and a third of Canadian employers are using AI to draft internal or company communications.

“While many can see the benefits of AI, there are still significant concerns around security, productivity, and margin of error that need to be addressed before we will see widespread implementation across global businesses,” Raj Singh, CEO at Peninsula Canada, said in a statement. “With online security and data protection being a top priority for most employers, this is not a big surprise.”

What is surprising, Singh said, is that more than 50 per cent of employers who’ve already brought AI into the workplace are unsure of the impact it’s having.

“This raises questions about the credibility of AI,” he said. “With many respondents concerned about errors, quality and security, it appears that more adoption time is needed to explore the avenues for businesses to best integrate AI solutions into their workflows.”

Other research supports findings of slow business AI adoption rates

A separate survey this August, by Chicago-based Sikich Industry Pulse, a global company specializing in technology-enabled professional services, found that one-fifth of more than 1,000 manufacturing and distribution executives have no plans to incorporate AI into their operations.

More than 60 per cent of executives are unsure if AI will add any benefit to their companies or have researched AI but have not found an appropriate use case. Less than 20 per cent of manufacturers have begun to implement AI technologies.

Only seven per cent of manufacturers are actively looking into or have already filled open employee roles with AI technology. However, while adoption of AI technologies is low, 24 per cent of executives said they’re interested in using AI to supplement the workforce.

A survey by KPMG, reported earlier this year, found that 35 per cent of Canadian companies said they currently use AI in their operations versus 72 per cent in the U.S. Of the Canadian organizations, more than four in 10 are utilizing AI in their call centres, with 53 per cent of respondents acknowledging they could be using AI more effectively and efficiently.

Forty-seven per cent of Canadian businesses said they lack the in-house expertise to validate and verify the accuracy of their AI algorithms, and more than four in 10 (44 per cent) said their data sets are either too small or too big, are missing data, are incorrect or not properly formatted.

 Another measure, the IBM Global AI Adoption Index which surveyed 7,502 global business decision makers, found that 30 per cent of Canadian companies have deployed AI, while 58 per cent are “exploring AI.” In comparison, nearly 60 per cent of IT professionals in China and India said their organization already actively uses AI.

According to an international study published last year in the journal Technovation, companies need to be ready to make significant investment in AI to see any financial gains, The study, which surveyed 160 startups and small businesses in South Korea, found it is only when firms increase their intensity of AI adoption to at least 25 per cent – meaning they are using one-quarter of the AI tools currently available to them – do growth rates start to pick up and investments start to pay off.

The AI adoption rate by Canadian businesses hasn’t improved much since a report by Deloitte found, in a 2019 survey of more 1,000 businesses, that at least 71 per cent of Canadian businesses have not started to use AI in any way, while Canada’s early adopters are struggling to scale their pilot AI projects.

Deloitte’s report called on company leaders across Canada to take action. “For the nation to lead globally on AI, you must provide the demand locally by adopting AI within your own businesses,” it said. “To help Canada fulfill its potential for world leadership in the adoption and deployment of AI, Canadian businesses that don’t already use AI need to adopt it, and those businesses already using it need to scale up their AI deployment.”


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